Example 1

In the US, 15% of all health expenditure goes to prescription drugs. According to the Statistical Abstract of the United States 2012, the consumer price index attributable to prescription drugs rose by 3.6% per annum and that of the total medical care by 3.8% per annum (U.S. Census Bureau, 2012). In 2011, it was recorded that sale of prescription drugs increased by 2.9% compared to an increase of 0.4% in 2010. The sevenfold increment was attributed to increase in specialty and brand-name drugs which are more expensive than generic drugs – even while factoring a general increase in the price of generics (U.S. Census Bureau, 2012). While a generic drug produces an equal therapeutic outcome as a specialty or brand-name drug, there are fundamental differences existing in the introduction of the two drugs. First, a generic drug only proves that it has the same bioequivalence as the drug coming off patent compared to the proof required in introducing a brand-name drug altogether. Second, the amount of time and cost required to introduce a brand-name drug into the market is higher as the drug has to undergo animal study and faze I, II, and III clinical trials before gaining FDA approval. Therefore, drug manufacturers would wish to stymie competition as the profit margin from brand-name drugs is higher than that of generics. Patent holders therefore use out-of-court settlements with competitors to delay the introduction of a generic for a drug whose patent life has expired.

In July 2013, the European commission fined Lundbeck of Denmark for colluding with Ranbaxy of India and Merck of Germany to delay the entry of citalopram, a blockbuster generic antidepressant between 2002 and 2003 (Kanter, 2013). In the US however, little evidence suggests that action has been taken for companies like Cephalon whose CEO, publicly announced that $4 billion in sales was made when a pay-for-delay deal was agreed to keep the cheaper generic Provigil from entering the market (U.S. PIRG, 2013).

The major legal barrier to entry in the pharmaceutical industry is patents. This involves restrictions for a competitor or new entrant in developing a drug that has been introduced by a different company and whose patent has not reached the expiration date. Patents vary in length but are usually no more than a couple of years. After the expiration, rival companies can develop generic drugs which are replicas of the originally patented drug.

While the EU antitrust laws have stepped in to curb delays in introduction of generics, Americans continue to bear the brunt of these rarely publicized pay-for-delay deals (U.S. PIRG, 2013). The first ethical issue that arises is that the holding back of generics leaves consumers to foot the extra bill that is the difference between the brand-name drug and the generic. In most cases, patients with a wide range of chronic or serious conditions like heart disease, cancer and insomnia are left to go for prolonged period of time without drugs as they cannot afford them. The second ethical issue is that the delayed introduction of generics means that the cost of other care services like Medicaid and Medicare goes up which also burdens patients. It is estimated that the least cost of a brand-name drug is 10 times more than that of its generic equivalent and as much as 33 times more. The large amounts of money being made from these delays cannot justify the complications that patients have to deal with as they grapple with finances to buy brand-name drugs or as they wait for generics. It is estimated that these delays can take a minimum of 5 years and a maximum of 9.

Example 2

In india, there is a three-way merger between Tata Teleservices, Russia’s Sistema JSFC and Aircel, controlled by Malaysia’s Maxis (Mankotia & Kalesh, 2013). This merger will see the combined company become the third largest in the country by subscriber numbers. Consumer advocates are concerned about this move as it reduces the number of competitors from 7 to just 4. Tata Teleservices and Aircel are both in debt and are thought to be entering the merger as a means of restructuring these debts. This is set to make Sistema JSFC, which is partly owned by the Russian government as the dominant partner. With this in mind, it is possible to see that the apparent influence of the Russian owned company is being resisted due to the perceived disruption it will bring into the market. Traditionally, customer advocates have been wary of mergers between two or more major competitors as it erodes the abundance of company cultures that define the telecommunications market. With each company having a distinct market strategy, it is natural that their product packaging is different such that different consumers are attracted to different companies because of these distinct packages. Therefore, mergers remove these options from consumers as the resultant company may assume the strategy of the dominant company or may formulate a new one altogether. When these options are removed from consumers, prices will be affected. This will consequently affect the approach of competitors which sparks a chain reaction that may cause the market to either become flexible or rigid.

The expected merger between the three companies has sparked a discussion as to the best action to counter the perceived increase in the strength of the resultant company. Mankotia and Kalesh write that Bharti Airtel, the second largest company, has been asked to lead moves that could lead to mergers in the Indian telecom market, with Vodafone India CEO Martin Pieters saying that he sees his company as the “natural consolidator” (2013). Such a move could see the second largest and the largest telecommunication company’s merge, which could lead to the formation of a monopoly.

Monopolies usually use their influence on a market to dictate policy. Naturally, a merger between the largest and second largest companies results in a monopoly. The ethical dilemma here is whether the monopoly will result to tactics that are aimed at edging out the remaining but small competitors in order to fully claim their share in the market. In such an eventuality, the consumer is exposed to a non-competitive market where prices are fixed and become rigid and product innovation stalls thereby leading to inferior products. The consumer is left unprotected and is vulnerable to extortion by the resultant monopoly. In such a case, government intervention would be necessary to protect these consumers.

Antitrust laws exist so that monopolies that exploit people are controlled. In a case where a merger may result in a monopoly, some countries like the US and the EU have set up stringent antitrust laws that ensure there is competition in the market which in turn stimulates innovation and growth.

References

Kanter, J. (2013, June 20). Europe Fines Drug Companies for Delaying Generics. New York Times, B3

Mankotia, A.S. & Kalesh, B. (2013, Sep 27). Tata Teleservices, Sistema and Aircel in initial merger talks. The Economic Times. Retrieved 01 Nov. 2013 from <http://articles.economictimes.indiatimes.com/2013-09-27/news/42464117_1_tata-teleservices-maxis-aircel>

U.S. Census Bureau (2012). Consumer price indexes of medical care prices: 1980 to 2010. Statistical Abstract of the United States, 2012. Retrieved 01 Nov. 2013 from <www.census.gov/compendia/statab/2012/tables/12s0142.pdf. Accessed April 18, 2013 – See more at: http://www.uspharmacist.com/content/s/253/c/41309/#sthash.4Nw9YGIP.dpuf>

U.S. PIRG (2013, July 11). Top Twenty Pay-For-Delay Drugs: How Drug Industry Payoffs Delay Generics, Inflate Prices and Hurt Consumers. U.S. PIRG. Retrieved 01 Nov. 2013 from <http://www.uspirg.org/reports/usp/top-twenty-pay-delay-drugs>